SACRAMENTO – California lawmakers passed a massive tax increase Thursday along with making billions in cuts, ending a grueling week of negotiations over closing the state’s $42 billion budget deficit.

The package of bills was sent to Gov. Arnold Schwarzenegger after the early morning votes in the Assembly and Senate, and the governor was scheduled to sign it today.

The Republican governor called the Legislature’s work courageous, noting that Democrats compromised on their opposition to deep spending cuts and some Republican lawmakers set aside their opposition to tax increases.

“Now, instead of worrying every day only about IOUs and about red ink, we can start moving California forward once again,” he said. “This action to solve our $42 billion deficit was difficult but courageous and just what California needs.”

Both houses of the Legislature got the bare minimum of votes to reach the two-thirds requirement needed to pass the package, which includes $12.8 billion in tax hikes, $15.1 billion in cuts, billions in borrowing and measures intended to stimulate the state’s economy.

If the economy doesn’t worsen considerably, the plan is intended to balance the state’s budget through June 2010. The Senate began debating before dawn Thursday after a moderate Republican, Sen. Abel Maldonado of Santa Maria, agreed to provide the final vote.

In exchange, he won major concessions from Democrats and the governor. Maldonado was able to strip out a 12-cent-a-gallon gas tax from an earlier version of the package and have two measures placed on a future ballot: One seeks fully open primary elections and another would freeze lawmakers’ pay when the state runs a deficit. He also got $1million for office furniture in the controller’s office deleted.

Maldonado acknowledged the vote for tax increases could come back to haunt him in a future election but said it was the right decision.

“My friends, this might be the end for me,” he said. “This ensures it’s not the end for California.”

The Legislature routinely needs to do that kind of vote-trading to reach the two-thirds threshold necessary to pass budgets. Other anti-tax senators won their own provisions, including a tax credit for buyers of new homes to appease Republican Roy Ashburn of Bakersfield and, for Lou Correa, a Democrat from Anaheim, tens of millions of dollars for Orange County.

The accord came after both houses began meeting on Valentine’s Day and set two records for the longest continuous legislative sessions in state history – one by the Assembly earlier in the week and the 45<MD+,%30,%55,%70>1/<MD-,%0,%55,%70>2-hour marathon that ended Thursday in the Senate.

“This has been a long, very painful journey,” said Assembly Speaker Karen Bass, D-L.A.

The legislative ordeal began in December, when Schwarzenegger called the second of three successive special sessions to deal with California’s growing fiscal crisis. As each week passed, the financial news grew worse.

Refunds to taxpayers were delayed, payments to state vendors stopped, state workers were ordered to take unpaid furlough days and the Schwarzenegger administration began sending layoff notices that would have affected some 10,000 state workers.

Even under the budget deal struck Thursday, some employees might have to be laid off as part of Schwarzenegger’s plan to save 10 percent from the government payroll, said Vicki Bradshaw, the governor’s cabinet secretary.

“There will be some layoffs. We expect to get 10 percent of the employee cost savings through the combination of furloughs, holidays, overtime and layoffs,” she said, although she could not say how many jobs might be affected.

As California’s deficit grew and the impasse to resolve it dragged on, the state’s bond rating sunk to the lowest in the nation, preventing the state from borrowing money for daily expenses or infrastructure improvements.

Hours after the budget package was approved, the state Department of Finance announced that work on 276 road, school and other projects continue.

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